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Exemption from capital gain for purchase of house on loan

RADHIKA PATEL (PROFESSIONAL) (42 Points)

08 May 2015

Hi Friends,

I am Radhika Patel from Rajkot studying CA Final and Practice in the field of Income Tax.

I have come across some question regarding CAPITAL GAIN which is discussed herein below. I am thankful to you for sparing time for it. Thanks..

CASE

Assessee sold House in PY 2013-14 attracting Capital Gain of Rs. 3,70,000. After selling House he Purchased Residential Flat (in the NAME OF HIS WIFE) FINANCED THROUGH HOME LOAN (in Joint Name) for Rs.12,00,000/-.

The question is,

1. Whether Assessee (Husband) can claim exemption u/s 54 for RESIDENTIAL PROPERTY purchased in his WIFE NAME.

2. If Yes, Whether Exemption can be availed even if House Property purchased through Home Loan (In Joint Name)

What whould be appropriate steps to save Capital Gain Tax.

- Radhika Patel

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28 Replies

Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 08 May 2015

As per various court rulings exemption can be claimed by assessee because Sec 54 not require that the new house to be purchased in the name of assessee,it only require that only the proceeds of capital gain to be used for investment u/s 54.

Thus,you can invest upto maximum of Rs 3.70 lacs(capital gain).

1 Like

CA HAYEDAR SHAIKH (Practice ) (622 Points)
Replied 08 May 2015

Dear Radhika,

Section 54 clearly says that if the assessee is owner of the property, he is entitled to exemption even if the new property purchased is in the name of his wife but the same is assessed in the hands of the assessee. The same was held in the case of CIT v. V. Natarajan 154 Taxman 399 (Mad.) [2006].

1 Like

RADHIKA PATEL (PROFESSIONAL) (42 Points)
Replied 08 May 2015

But What if House Purchased from money borrowed through home loan (in Joint Name as co-borrower)????

Also eligibility of Assessee (Husband) to claim Interest paid on Home Loan u/s 24 AND deduction in respect to Principal Repayment u/s 80C???

RADHIKA PATEL (PROFESSIONAL) (42 Points)
Replied 08 May 2015

Originally posted by : HAYEDAR SALEEM SHAIKH
	Dear Radhika, Section 54 clearly says that if the assessee is owner of the property, he is entitled to exemption even if the new property purchased is in the name of his wife but the same is assessed in the hands of the assessee. The same was held in the case of CIT v. V. Natarajan 154 Taxman 399 (Mad.) [2006].

But What if House Purchased from money borrowed through home loan (in Joint Name as co-borrower)???? Not from receipt from sale of old house.

Also eligibility of Assessee (Husband) to claim Interest paid on Home Loan u/s 24 AND deduction in respect to Principal Repayment u/s 80C???

CA HAYEDAR SHAIKH (Practice ) (622 Points)
Replied 08 May 2015

As a co-owner, he is eligible u/s. 24 and u/s. 80c.

For your information -

Section 54 states that same amount of sale consideration should be utilized for acquisition of property, even borrowed funds can be utilized for that purpose.

RAVI RABADIA (PROFESSIONAL) (92 Points)
Replied 08 May 2015

Originally posted by : HAYEDAR SALEEM SHAIKH
	As a co-owner, he is eligible u/s. 24 and u/s. 80c. For your information - Section 54 states that same amount of sale consideration should be utilized for acquisition of property, even borrowed funds can be utilized for that purpose.

As per Radhika's Case,

He is not co-owner. He has purchased Flat in name of his wife alone. But in Home Loan, he is co-borrower.

Can We claim Exemption u/s 54 for house purchased through home loan.?? ANY CASE LAW??

RADHIKA PATEL (PROFESSIONAL) (42 Points)
Replied 08 May 2015

Originally posted by : Saurabh Maheshwari
	As per various court rulings exemption can be claimed by assessee because Sec 54 not require that the new house to be purchased in the name of assessee,it only require that only the proceeds of capital gain to be used for investment u/s 54. Thus,you can invest upto maximum of Rs 3.70 lacs(capital gain).

Yes, Ravi is right understood my question. He is not Co-Owner. He is Only Co-borrower for home loan.

What is your Oppinion on this matter???

CA HAYEDAR SHAIKH (Practice ) (622 Points)
Replied 08 May 2015

Sorry for the same.

See the case laws of Ishar Singh Chawla v. Dy. CIT [2010] 130 TTJ (Mum.)(UO) 108.

It has been mentioned in section 54 that same funds must be utilized for purchase of another residential house, requirement of law is that, assessee should purchase residential house within specified period and source of funds is quite irrelevant.

2 Like

Rajesh Kumar Gupta (Senior Divisional Manager) (714 Points)
Replied 08 May 2015

As per section 54 even an amount spent in house building within 1 year immediately proceeding the year of sale, the assessee becomes eligible.

RADHIKA PATEL (PROFESSIONAL) (42 Points)
Replied 08 May 2015

Originally posted by : Rajesh Kumar Gupta
	As per section 54 even an amount spent in house building within 1 year immediately proceeding the year of sale, the assessee becomes eligible.

Hello Sir,

The Question is whether Exemption can be availed for House (Flat) Purchased on HOME LOAN. And not from receipt from sale of old house.

If Yes, Can we simulteneously claim Interest on Home Loan u/s 24 and Principal Payment Deduction u/s 80C??? (is it not double Deduction???)

CMA Poornima Madhava (CMA) (13097 Points)
Replied 08 May 2015

Yeah u can claim exemption even if new property is purchased out of borrowed funds provided it is purchased within the time limit specified.

You can claim deduction of interest u/s 24b and principal payment u/s 80C. There is no double deduction bcoz principal does not include interest component.

1 Like

Avinash Bhagat (Student CA CPT ) (53 Points)
Replied 08 May 2015

Hello its avinash bhagat n i am the student of cpt.... I want to ask u that .. Why closing stock is coming in trading account as it is real account n trading account contains only nominal nature only .?????

Rajat Jain (Student CA IPC / IPCC) (87 Points)
Replied 08 May 2015

Hello Radhika , Answer to your 1) Yes , he can claim exemption u/s 54 as in sec54 it is said the proceeds of old house should be utilized for purchase of a new residential house property. 370000 in this case, should be utilized for the purchase of new rhp ,then borrowed fund can also be utilized as much. 2)as a co owner he is eligible for deduction u/s 80C for principal payment to the extent it has been paid from his bank account. 3) The interest limit of rs200000 u/s 24b can be enjoyed by both husband and wife each. 4) Tax planning: if the income of husband is more , then show a loan given by wife to husband of the joint holding of the principal amount as per joint holding agreement. And then pay it from husband account and claim full 1200000 principal amt by assessee.

1 Like